Thank You

Error.

The legendary scribe A.J. Liebling once penned a vivid portrait of a jewelry thief named Marty the Clutch for whom there was no such thing as an honest profession. Marty would invariably inquire of every new acquaintance, "What's your dodge?"

Members of Congress and the White House would have you believe that theirs is not a dodge, but the only honest profession. When they pontificate about immorality on Wall Street, they are as indifferent to the hypocrisy of their own words as any televangelist.

An explanation is offered by Jeff Connaughton in this remarkable exposé: Wall Street, the Congress, and not least, the Obama administration all frolic in the same bed. In fact, insiders call this collective group The Blob.

The Payoff: Why Wall Street Always Wins

"The Blob moves together," Connaughton observes. "Its members are in constant contact by e-mail and phone. They dine, drink, and take vacations together....Indeed, a good way to maximize your family income is to specialize in financial issues and marry someone inside The Blob."

Connaughton's book is a muckraking classic, a rueful hoot with terrific pacing. He spares none of the perpetrators, be it former Democratic Sen. Christopher Dodd, former Treasury Secretary Timothy Geithner, current Attorney General Eric Holder, or President Barack Obama himself.

The author writes as a former participant in the muck, which makes this book a semiconfessional. Unlike other recent insider tomes about Washington's bailout of Wall Street, The Payoff does not try to portray its author as a hero. Connaughton looks in the mirror and writes, "[A] decade after coming to Washington I had become a highly ambitious Washington insider seeking personal gain while facilitating the status quo. In other words, I had become a professional Democrat, one of thousands who earn a lot of money in the private sector while positioning themselves for better jobs in future Democratic administrations."

Connaughton was a genuine political insider up to his neck in politics. He worked for years in the Senate for Joe Biden, served as a council in Bill Clinton's White House, and parlayed his government experience into a successful lobbying gig that left him a multimillionaire with time on his hands. He had become a winner in the revolving-door culture that rewards those who kowtow to the status quo. "I came to Washington a Democrat and left a plutocrat," he writes.

Beholden financially to no one, but hankering to be part of the Obama team's inner power circle, he returned to politics when Obama first won the presidency, hoping for a cubicle in the White House. Obama's ban on lobbyists in the West Wing derailed this ambition. So instead, Connaughton went to work on Capitol Hill for Delaware Sen. Ted Kaufman, who had been named to fill out the little less than two years left in Biden's term after Biden became vice president.

Kaufman and Connaughton genuinely liked each other. Both had maintained enough idealism to believe that a lawmaker could serve the public by righting wrongs. "Somewhat naively, I envisioned Ted and me as Vice President Biden's emissaries in the Senate, an extension of the Obama-Biden team," he writes. Their goal would be to reform the financial system in the wake of the 2008 credit crash.

Kaufman was not on any committee with oversight of the financial system. Nevertheless, with Connaughton's help, the lawmaker embarked on a nonstop crusade to clean up the Street. Like Connaughton, the new senator was outraged by the 2008 crash. He warned repeatedly of the perils of high-speed trading—months before the Flash Crash of May 2010. Afterward, he badgered then–SEC Chairman Mary Schapiro to take steps to keep a similar crash from occurring again. He challenged naked short-selling. He pressed his Senate colleagues to fund the Department of Justice so it could investigate Wall Street executives as if they were drug kingpins.

Kaufman and Connaughton were running against the clock. They lost. "I should have known that the legal and regulatory system meant to protect us has rotted away," Connaughton laments.

The Payoff is a valuable record of a major defeat in a fight worth waging.

Don't Complain

Things could be worse

Reviewed by Joe Queenan

Ever since the Declaration of Independence first established the pursuit of happiness as a right, up there with life and liberty, Americans have been obsessed with it. Note the perennial glut of happiness books, and vast sums of money forked over to motivational speakers.

Enter British journalist Oliver Burkeman, an award-winning feature writer for the Guardian, who argues that the American obsession with pursuing happiness is self-defeating and futile. The harder you aim at the target, the less likely you are to hit it. The more energetically you pursue happiness, the less likely you are to achieve it. Which would seem to suggest that, like many other documents by dead white men, our Fourth of July text was in this case dead wrong. But it's doubtful that this well-written and thought-provoking book can persuade most Americans to abandon the pursuit of happiness.

The Antidote: Happiness for People Who Can't Stand Positive Thinking

Despite the subtitle "Happiness for People Who Can't Stand Positive Thinking," this is not a guide to achieving happiness by other means. Instead, Burkeman proposes giving up on the very notion of being happy, at least in the sense that Americans define it—where happiness involves emancipation from financial worry, a sense that goals have been achieved and dreams fulfilled, and a certain feeling of serenity and security. The author advises lowering one's expectations and just going with the flow.

He covers everything from disasters on Mount Everest—did the climbers really think that getting to the top would make them happy?—to the seemingly inexplicable fact that people in desperately poor nations like Mexico do not seem to be all that unhappy. He frequently cites the pop philosopher Alan Watts—hugely popular in the 1960s—which gives the work a certain retro, touchy-feely aura.

Stripped to its core, The Antidote is a synthesis of Stoicism and Buddhism, also hugely popular in the 1960s. Never forget that you are going to die. Stop obsessing about the future. Try to think more like a frog. Alas, such creatures do not produce cathedrals or space stations or The Complete Works of William Shakespeare. They don't even produce things like The Antidote. The underlying philosophy—embrace negativity, accept limits, aim lower—is what got Jimmy Carter booted out of office.

In one of the stranger passages, psychologist Albert Ellis tells the author that people who are unhappy should cheer themselves up by focusing on a worst-case scenario, consoling themselves with the thought that they could actually be more unhappy than they already are. "If you are tortured to death slowly," Ellis reasons, "you could always be tortured to death slower."

In other words, if you are blind, you could also be deaf. If you have cancer, you could also have AIDS. If you were hanged and drawn, things could get really bad if you were hanged, drawn, and quartered. I am not sure this is the antidote to unhappiness that most people are looking for.

JOE QUEENAN's book about reading, One for the Books, was recently published by Viking.

The Ingredients of Success

One part skill to how many parts luck?

Reviewed by Harvard Winters

"I can't believe how lucky you just got." Anyone who plays poker, as I do, will at some point think or even make that statement. Success in poker is determined both by skill and luck. So if you've been winning lately, what's the reason?

More broadly, if you place different competitive activities along a skill-versus-luck continuum, with chess being near the "pure skill" end (the result is deterministic, and a materially better player almost always wins) and roulette being at the "pure luck" end (the result is probabilistic, and all strategies are long-term losers), how do individual sports compare with one another, and where does success in business and investing lie on this continuum? How much time and data do you need to properly answer this question? And why is it hard to accept the answers when they conflict with our intuition?

The Success Equation: Untangling Skill and Luck in Business, Sports and Investing

Michael J. Mauboussin, chief investment strategist at Legg Mason Capital Management, addresses such questions in this thought-provoking discussion of skill and luck. Mauboussin's career started at Drexel Burnham Lambert due to a bit of luck: He and his most senior interviewer bonded over shared love for the Washington Redskins. It's the sort of experience you can draw lessons from, or choose to forget if and when you achieve success in life. Similarly, the author notes that while top investment managers possess skill, luck still plays a large role, making it harder to draw the proper lessons from short-term results. Ignoring the presence of luck makes the skill-improvement process that much harder, if not impossible.

As the author points out, it's easy to introduce luck into a situation that seems dominated by skill. A student is told by his teacher to learn 100 facts. He learns 80, because that will earn him a grade of B, which he can live with. However, what if the teacher doesn't ask 100 questions on the test, but instead a random 20? Then the student's performance on the test will be a function both of skill (his knowledge of 80 of the 100 facts) and luck (how many of the 20 asked are part of the 80 he has studied). The student's test score will probably not reflect his true level of knowledge.

One of the book's key insights is dubbed "the paradox of skill." The author explains, "As skill improves, performance becomes more consistent, and therefore luck becomes more important." In 1941, Ted Williams had a batting average of .406, making him the last player in Major League Baseball to hit over .400 for a full season. Why is this, when overall skill has improved since then, in light of broader access to talented players and superior conditioning? Because the skill of pitchers also improved, Ted Williams would probably not sustain a batting average of better than .400 if he were playing today—unless he got lucky. Similarly, businesspeople and investors can lose sight of the fact that, while they may be improving their products or skills, others are too, thus reducing the opportunity for excess returns.

Also in 1941, another legendary ballplayer, Joe DiMaggio, got a hit in 56 straight games, which is considered among the most statistically unlikely streaks in sports history. Was this luck or skill? Stephen Jay Gould, quoted by the author, says it best: "Long streaks are, and must be, a matter of extraordinary luck imposed on great skill." A .300 hitter's chance of three hits in a row is 2.7%, but a .200 hitter's chance is only 0.8%. Batters with the longest streaks therefore had batting averages well above the average. But to achieve DiMaggio's streak, luck was essential.

Mauboussin covers a variety of related topics, including the benefits and limitations of practice, and the dangers of "black swan" events. He also offers a novel way to frame the problem of skill versus luck. There are two jars—a luck jar and a skill jar. Each contains balls labeled with a mix of positive and negative numbers. "Higher numbers are better," meaning, for example, that 5 in a jar stands for great skill or great luck and -5 for poor skill or bad luck. So, for example, "if your level of skill is 3 but you draw a -4 from the jar representing luck, then bad luck trumps skill and you score -1." Alternatively, "Your skill at -3 is as low as it can be, but your blind luck in choosing 4 gives you an acceptable score of 1." In the real world, if your level of skill really is 3, one reassuring lesson from the exercise is that in the long run, the good and bad luck will probably cancel out.

You have to wonder if Mauboussin might ultimately regret writing this book. The greater the number of people who take his lessons to heart, the harder his job as investment strategist will become. You won't regret reading it.

HARVARD WINTERS writes research on banks and other financial-services companies.

Raising Rwanda

An unlikely growth story

Reviewed by Magatte Wade

When people think of Rwanda, they still think "genocide." Rwanda, Inc. urges them to update those thoughts. According to the authoritative Fraser Institute, which tracks an index of economic freedom for each of 144 nations, Rwanda's overall index has been one of the fastest growing in the world since the genocide. This African nation of 11 million now ranks 45th in economic freedom, higher than France, Poland, and Israel.

Journalist Patricia Crisafulli and consultant Andrea Redmond don't cite the Fraser Institute index. But they do vividly describe the transformation that has occurred in Rwanda. While economic data for developing nations are only approximations, data cited by the authors indicate just what you'd expect when economic freedom achieves a great leap forward: Rwanda has enjoyed strong economic growth accompanied by a noticeable decline in poverty.

Rwanda, Inc.: How a Devastated Nation Became an Economic Model for the Developing World

The turnaround is largely due to the nation's current president, Paul Kagame, an extraordinary person, even in the eyes of his detractors. Growing up as a Tutsi exile in Uganda, Kagame returned to Rwanda by the early 1990s to lead an army that tried to prevent the persecution of Tutsis that had been taking place since independence in 1962. When Hutu extremists began the massacre in April 1994, U.N. troops stood by and watched it happen, along with the rest of the world. Kagame's troops swept in to stop the genocide, succeeding by July 1994, but only after more than a million people had been killed. From 1994 to 2000, a Hutu leader supported by Kagame was president. Since 2000, it has been Kagame.

Having established himself as an effective military leader, Kagame now appears to be just as effective in lifting the living standards of his people. He is also known for reducing corruption. In 2005, when Transparency International first ranked Rwanda according to its Corruption Perceptions Index, the country was 83rd. By 2011, it had moved up to 49th, making it one of the least-corrupt countries in Africa, and just ahead of Costa Rica. He also proved to be an astute investor. On the advice of Clet Niyikiza, a Rwandan Ph.D. who had been vice president of medicine development for GlaxoSmithKline, Kagame invested $16 million of Rwandan pension funds in Merrimack Pharmaceuticals, a start-up alleged to have a blockbuster cancer drug.

The authors respond to criticisms of Kagame, but not in sufficient depth to address the concerns of his detractors. One concern is that he has not permitted freedom of the press. The response of the Kagame administration is that, since the genocide, it has been necessary to limit speech that is potentially inflammatory. Crisafulli and Redmond point out that, to this day, Germany and other European nations have crimes against hate speech that are similar to the limitations imposed in Rwanda.

One indication that Kagame does not quite fit the usual dictator profile: He engaged in a public debate in front of 70,000 Twitter followers with a foreign journalist who accused him of being "despotic and deluded." Kagame is consciously modeling Rwandan reforms on those of Singapore, rated second in the world for economic freedom, but with an admittedly authoritarian government. Kagame has vowed to step down in 2017, although critics question whether he will. We have just four years to wait to see if he keeps his word.

Compared with the embarrassing parade of leaders in Africa since independence, Rwandan President Paul Kagame is clearly intelligent, disciplined, and principled. It is inspiring to read about the economic gains he has brought to the long-suffering people of Rwanda. In light of Kagame's unquestionable achievements, it would have been even more satisfying if Rwanda, Inc. had either shown us Kagame warts and all or definitively exonerated him from the most damaging charges against him. Instead, we are left to wonder: Is Kagame great only with respect to economics? Or might he be a truly great African leader?

Senegalese entrepreneur MAGATTE WADE is a World Economic Forum Young Global Leader. She blogs at Magatte.wordpress.com.